A defendant in a securities-related arbitration is seeking to overturn a $1.4 million panel award, alleging “evident partiality.” Arbitration defendant Morgan Keegan & Co. backs up that allegation with some usual evidence: a dissenting opinion by one arbitrator who claims another arbitrator was “biased.”
The background to the dispute is as follows, according to the original petition in Morgan Keegan & Co. Inc. v. Lawrence B. Dale, et al., filed Jan. 16 in Dallas’ 191st District Court.
Lawrence B. Dale, described in the petition as an “extremely wealthy investor and oil and gas magnate,” and his related entities brought an arbitration action against Morgan Keegan & Co. Inc. The arbitration dispute concerned Dale’s $16 million purchase of shares in the Regions Morgan Keegan Select Intermediate Bond Fund, which lost value during the continuing financial crisis, according to the petition.
A statement of claim was filed with the dispute-resolution arm of the Financial Industry Regulatory Authority (FINRA) in accordance with an arbitration agreement between the parties.
The three-member FINRA panel that heard the dispute consisted of Chairperson Francis Johnson Wright and Karen Washington, both public members, and Timothy Davis, a non-public member of the panel. According to FINRA rules, cases involving more than $100,000 in controversy include a non-public member, a person who is “engaged in the business in the brokerage industry,” according to the petition.
After Wright and Washington approved a $1.4 million award to Dale on Dec. 17, 2012, Davis filed a dissent to the award. He noted that some of Wright’s comments and conduct during the arbitration hearing “demonstrate bias,” including her comments that she would “ignore account agreements” because they only served to “trap investors” and that industry firms needed to “take a greater responsibility for all customer losses.”
“Based on the totality of the circumstances I witnessed, it appears to me that the chairman in this case is anything but neutral and views this unique case only through the filter of her own unrelated market losses and losses of friends,” Davis wrote in his dissent.
Vacate or Affirm?
Stephen C. Carlin, managing shareholder of the Dallas office of Greenberg Traurig who represents Morgan Keegan, believes his client has some unusually strong evidence to justify vacating an arbitration award. That’s something trial courts are loathe to do except under a limited set of circumstances, including alleged “evident partiality” due to the bias on the part of an arbitrator.
“Evident partiality is a tough standard. But here, there’s direct evidence of partiality because the arbitrator’s dissenting opinion speaks for itself,” Carlin says.
“Usually, in FINRA arbitrations you have reasoned awards. And this is not a reasoned award. Dissents are uncommon, and frankly this is rare,” Carlin says of Davis’ dissent.
A footnote in the petition notes that “from January 1, 2006 through August 2012, 9,853 awards were issued in FINRA arbitrations. Of those awards, only 217 included dissents (2.2%), and of those dissents only 21 (0.2%) were accompanied by a reasoned explanations like Arbitrator Davis’ dissent.”
Walker Friedman, a partner in Fort Worth’s Friedman, Suder & Cooke who represents Dale, disputes that Wright displayed bias during the arbitration.
“We’re going to ask for the arbitration award to be affirmed, obviously. We’re not seeing any bias on the part of the chairman at all,” Friedman says.
“The fact that somebody agreed with one side or the other, that’s how these things are decided. That’s ultimately how a decision is made,” Friedman says. He adds that the dissenting opinion in the case was written by “the industry representative, and he’s entitled to his view, but just because the vote was 2-1 against him doesn’t mean that somebody was biased.”
Davis declines comment about the petition, as does Nancy Condon, a spokeswoman for FINRA. Wright did not return a call for comment. Washington said she would call back but did not do so by presstime.